[This heretofore unpublished paper was delivered at the
Midwest Sociological Society meeting in Chicago,
April 1987.It is significant in particular for the bearing it has on Murphey’s
three
later books, The Emerging Crisis of
Economic Displacement, A Shared Market Economy and
The Great Economic Debacle -- and Beyond.]

The Concept of a Social Market Economy: Antecedents and Possibilities

Dwight D. Murphey

The past
decade in the United States
has marked a period of extraordinary ideological indeterminacy.It is hardly possible to claim an “end to
ideology,” since people must inescapably rely upon large systems of perception
and of values to interpret and give meaning to what is otherwise an
inexplicably complex social reality.But
there has been an exhaustion and fragmentation of each of the major systems of
social philosophy.The result is that
the situation is more existentially open, for good or for bad, than perhaps it
has ever been before.

To
understand where we are, it will be important to trace briefly (and with
apologies for its extreme over-simplification) the main outline of ideological
development during the past two centuries.That will help us understand, too, just why it is that one of the very
distinct possibilities for future development in the area of social philosophy
is the concept of a “social market economy.”This is one of the options now open, and toward which several points of
view have been converging.In keeping
with liberalism in the classic sense, it envisions a democratic political order
founded upon a competitive market economy and upon the limitation of the power
of government and of other collectives.But it goes further, becoming more rounded and fully satisfactory by
taking into account the grounds for the varied objections that have been raised
against such an order by the many critics of capitalism and the bourgeoisie.

Review of modern
ideological development:

Two of the major social philosophies
that are extant today—Burkean conservatism and classical liberalism—were in
sharp conflict in the eighteenth and early nineteenth centuries.

1.Burkean conservatism.For almost twenty-five hundred years, Western
civilization was governed by a mixture of ingredients that typified, although
in very different outward form, both the mos
maiorum of the RomanRepublic
and the Middle Ages.These included
social hierarchy, a landed economic base, a closed system of ideas insulated
from outside influences, an encompassing religious center, a powerful
centripetal ethical and community consensus, and (in Rome and the late Middle
Ages) a strong state.

It was when
these components were most under attack that they were articulated into a
coherent social philosophy by Edmund Burke, Samuel Johnson and others in the
eighteenth century.This conservative
philosophy stood out strongly against both the on-rushing individualistic
liberalism that first challenged it and, somewhat later, the socialism of the
Left.At the same time, it shared some
of the elements of each.

It has
shared with the Left a deep alienation against commercial civilization and the
bourgeoisie, a desire for a spiritual transcendence of the prosaic qualities of
everyday life, and a willingness to see the interests of the individual as
primarily identified with those of the whole.Because of this, the points it makes about capitalism and the bourgeoisie
are in many ways similar to those made by the Left.

This
conservatism has at the same time shared with classical liberalism an
opposition to the leveling thrust of modern egalitarianism.Nor does it join the Left in the worldview
that the central problem in society is the struggle of the have-nots against
the haves.

Burkean
conservatism has undergone a major intellectual revival in the United
States and elsewhere since World War
II.Especially since 1960, the bulk of
articulate intellectual work on the Right in the United
States has been done by this type of
conservative.Necessarily, to adapt to
modern conditions, this conservatism has made many compromises.It no longer has an hereditary aristocracy
that it can champion; in its opposition to socialism, it has come to embrace much
of the outlook of free-market capitalism; and when it reveres tradition and
organic change, the tradition that is at hand is not medievalist, but one
formed for the most part by the classical liberal values of the American past.

It is this
mixture that makes Burkean conservatism a possible source for a philosophy of a
“social market economy.”Indeed, this
potential has been manifested directly in the writing of Wilhelm Roepke, one of
the intellectual fathers of the post-World War II soziale Marktwirtshaft (social market economy) in Germany
that was implemented first by Ludwig Erhard and later by Karl Schiller.

2.Classical liberalism.The individualistic liberalism that
challenged Burkean conservatism and that we speak of as “classical liberalism”
was in the eighteenth and early nineteenth centuries a fighting faith.Far more than a narrow theory of capitalist
economics per se, it was a reforming
philosophy with broad intellectual, spiritual, political, cultural, ethical and
jurisprudential implications.It
represented the open society: the economic freedom of a market economy based on
private property; the limitation of state power and its governance through the
Rule of Law, of which constitutionalism was a major manifestation; the removal
of towering religion through secularization, religious pluralism and the
separation of Church and State; economic and social mobility, with the constant
undercutting of settled aristocracy; an ethic of personal and familial responsibility
and self-reliance; and a democratic political order consistent with that ethic.

So powerful
was this philosophy that it has formed a continuing underlay for much of the
American ethos.It is impossible to understand American
history, including the attitudes of many millions of Americans today, without a
potent awareness of its system of perceptions and values.

Yet, it is
equally important to understand what happened to classical liberalism in the
early nineteenth century.It was caught
in a vice formed by two powerful forces.

On the one
hand, it suffered from the effects of a massive “brain drain.”Spurred on by the Romantic reaction to the
Enlightenment that followed the disillusionment with the French Revolution, the
West’s main intellectual culture moved sharply into alienation from the
“bourgeoisie” and (classical) liberalism.“Liberalism” became an epithet on the lips of both Right and Left.The great majority of thinkers and writers
within the burgeoning intellectual subculture came to detest capitalism, the
commercial middle class, and the accompanying complex of ideas and values.

On the
other hand, the middle class had very little interest in ideas.Preoccupied with the daily round of busy
practicality, the predominant commercial culture continued the historic
intellectual default of the “bourgeoisie.”John Stuart Mill cried out against “shopkeepers who dream only of
shop.”During the ensuing century and a
half, the main culture has done little to spawn an intellectual culture
supportive of its basic values.

The result
of these two forces was that beginning in the early nineteenth century
classical liberalism lost, in the main, its intellectual thrust—and with it,
its idealist reformism.The few hundred
intellectuals who remained to champion it were placed on the defensive.As the Left launched attack after attack,
these intellectuals more and more took on the cast of apologists and
doctrinaire purists.In large part,
although not entirely, the theory of capitalism and of the whole complex of
associated ideas ceased to grow and to be refined in the many ways that it
needed to be if this liberalism were to address satisfactorily the many needs
of modern civilization.

This
limitation and narrowness has continued to plague classical liberalism, now
considered one of the forms of American “conservatism.”Although this is a defect, it suggests a
situation fraught with potential: it means that the best representatives of
classical liberalism today should be anxious to extend its thinking and
sensitivity into the many areas that the philosophy’s erstwhile defensive
posture has not allowed it to broach.Only such a revitalization will be consistent with classical
liberalism’s original thrust.

The question for such thinkers will necessarily
be: What are the principles, values and institutions that classical liberalism
ought to embrace if it is to formulate a system that is fully workable and
responsive?A systems theory, so to
speak, of freedom should result in a philosophy that will in no sense be untrue
to classical liberal values.It should
produce a liberalism that is once again idealistic, reformist, self-critical
and truly vital.The concept of a “social
market economy” will no doubt be extremely relevant to this quest.

3.The Left.Driven primarily by the intellectuals’
rivalry with and antagonism toward the active man of commerce and industry, the
Left came into being in the nineteenth century in a wide variety of forms.Its members shared the common worldview that
capitalism traps and exploits millions of people, and that the historic task is
to liberate those millions.They
differed among themselves, however, about the specific form that a socialist
society should take, the methods to be used in effecting the change, and the
theoretical framework for understanding the forces at work.

Many of the
forms of nineteenth century socialist thought either opposed calling into play
a large central state or viewed such a state as just a temporary
instrument.

These formulations were, however, overshadowed when in 1917
the Bolshevik Revolution brought the Soviet system into existence.For several years thereafter the imagination
of the world intellectual culture was held in thrall by the Soviet example.

A series of
“shocks” occurred, however, to shatter this faith.These included the Stalin purge trials; the
persecution of Trotsky; the Hitler-Stalin Pact followed immediately by the
joint invasion and partition of Poland; the Soviet attacks upon Estonia,
Latvia, Lithuania and Finland; the Lysenko affair; the revelations by
Khrushchev at the 20th Party Congress in 1956; the crushing of the
Polish October and of the Hungarian Revolution; the split with Tito and later
with China; and so on.

The
resulting loss of a central faith by the many intellectuals who stopped looking
to Moscow has resulted, since World
War II, in a search for alternatives.Those who are most radical have stayed as alienated from capitalism as
ever, and have cast about for a renewal of various of the forms of socialism
proposed in the nineteenth century.The
important thing for our present discussion is that social democratic thinking
in Europe has been torn between such a radicalism, on
the one hand, and a gravitation toward a middle ground that accepts many of the
premises of capitalism, on the other.

It is to
this latter that the concept of a “social market economy” is appealing.The Labour Party no sooner started to
implement its program in England
after World War II than a revulsion began, precisely among many socialists
themselves, against a program of nationalization.In Germany,
the Bad Godesberg program adopted by the Social Democrats in 1959 marked a
tremendously significant movement toward an acceptance of private property and
a market.The phrase “social market
economy” came to be used in connection with socialist thinking itself.Since that time, the movement in that
direction has been mixed, with the European Left seriously divided.

4.Modern American liberalism.A serious student of “modern liberalism” in
the United States
will find it necessary to differentiate between (a) its thought, (b) its
political expression and program, and (c) the form it takes in the media.This differentiation is made necessary by the
fact that, despite its appropriation of the name “liberalism” in the early
twentieth century, its thought has
been consistently socialist, even though mixed with a large measure of
dissimulation.Its political program,
formed out of a hybrid coalition politics, has always fallen short of that; and
it seems safe to say that its media presentation has never admitted to
socialist underpinnings.

In the United
States today, “media liberalism” dominates
our public discourse.The aggressiveness
with which it pursues its many biases, fads and crusades obscures the fact that
modern liberal thought, as such, has for many years felt itself exhausted.As with social democracy in Europe,
it has lost its central faith.The
shattering of this faith, which had long amounted to a supreme confidence in
the efficacy of federal governmental programs to address any problem, was no
doubt speeded along by the severe attacks made upon the liberal state by the
New Left, to whom that state amounted to a gigantic
“military-political-industrial complex.”

One of the
consequences of the malaise within liberal thought has been the movement of
some prominent liberals to the right, into “neo-conservatism.”We see such an erstwhile social as Irving
Kristol writing a book called Two Cheers
for Capitalism.Here, too, we see a
movement, by at least an important segment, toward a concept of a social market
economy.

Elements of a society
based on a social market economy:

We have
seen that there are developments within Burkean conservatism, classical
liberalism, social democracy and modern liberalism that in each case can lead a
significant fraction of its supporters toward one or another concept of a
social market economy.(We should be
aware that there are many varieties that can occur within the concept.There will be much for the proponents of a
social market economy to debate among themselves.)

I will
discuss briefly and by no means exhaustively several of the elements that, as a
classical liberal, I think should be included in a social market economy.In the course of that discussion, we will see
significant ways by which such a system will be distinguishable from a diluted
form of market socialism.This is
important because most of those who are tending toward support for a social
market economy will not support it if they have reason to believe that it is
simply another Fabian expedient designed to lead to socialism.

My
conception of a social market economy is not identical to the soziale Marktwirtschaft in Germany.That
program contained elements that were distinctively German, such as the desire
to retain a sizeable German peasantry.It has also contained so many elements of collective control over
property that it is questionable whether property has remained in any genuine
sense “privately owned.”These controls
have no doubt reflected considerable concessions to the Germanic and European
socialist background that preceded and surrounded Erhard and Schiller.

Here are
the elements that I think essential to a consensus among the forces I have
described:

1.Central emphasis on market processes.A social market economy ought to involve a
genuine, not a sham, reliance upon the market.This means, quite potently, a willingness to accept the allocation of
resources, income and status that the contractual nexus of the marketplace
brings about.Exceptions to this must be
seen as exceptions, limited to what does not wash away the general primacy of
the market.

The
centrality of the market means an acceptance of market decisions and a
forswearing of planning, other than such planning as is needed to provide a
workable framework for the market.The
acceptance of a social market economy concept implies, in the main, a rejection
by its supporters of the many objections raised by the opponents of a
market—such as that a market produces chaos, or rampant entrapment and
exploitation, or is a “zero sum game” in which every winner has a corresponding
loser, or results in the fleecing of a gullible, passive public through “want
creation.”

2.Private property, broadly distributed.Since private property is basic to a market,
enhances the independence and “private sphere” of the individual, and spreads
power, there will be a commitment to private property.At the same time, there will be a desire to
assure widely diffuse ownership.

The British
classical liberal economist Lord Robbins, although strongly opposed to a
“democratic leveling instinct,” wrote that “it is easy to conceive of societies
in which, either as a heritage of a feudal past or the accident of the forces
of the market, wealth becomes so concentrated in a few hands as to be dangerous
to the political freedom of the many… Where the danger exists, there the
general principles of freedom would make it right to deal with it.I also think that these same principles make
expedient those forms of taxation of property passing at death that tend to the
diffusion of property… Far from destroying the institution of property, it
tends to sustain it by causing property to be more widely diffused.” (Endnote
1)

3.Maintenance of vigorous competition.The belief in the social justice of the
market is largely made possible by a commitment to competition.Ludwig Erhard spoke of his “belief in the
development of competition as the best means of ensuring steadily increasing
productivity and a just distribution of the national income, as an
indispensable motive force for healthy economic development, and as the one
sure key to a truly ‘social market economy.’”Erhard argued that “cartels are alien to the very nature of a market
economy.”Roepke believed that industry
“should be broken up into smaller firms.” (Endnote 2)

Within
classical liberal thought, this is consistent with the school that acknowledges
rather than denies a genuine problem of possible concentration, and that
considers it a valid function of law and government to prevent
concentration.Again, Robbins is an
example of this type of thinker.He has
argued that “I still believe, as against Schumpeter and others, that there is a
real monopoly problem in free societies, and that it is unwise to resign
ourselves to doing nothing about it.”(Endnote 3)

Within
modern liberalism, the pro-competitive principle would be in the New Freedom
tradition of Brandeis and Wilson.It
would reject the New Nationalist position, which has wanted corporations to
become ever larger as a strep toward assimilation into government.

4.Awareness of the imperfections within the
market.In its defensive
posture, classical liberalism has been unwilling to admit to, and hence to
examine closely the implications of, imperfections within markets.This has led to an across-the-board denial of
the concept of bargaining power disparity.If its thinkers become alive to such issues, they will be able to
address many of the problems that have for a century or more appeared so
pressing to their opponents in such areas as labor relations and
consumerism.But their solutions will
have the advantage of being more market-oriented.

5.Awareness of important values the market
cannot serve.Again in their
defensiveness toward the market, classical liberals have been reluctant to
acknowledge that there are many values that are important to a satisfactorily
rounded civilization that the market is not prepared to serve.This reluctance has been overcome in some
measure by the writing of Milton Friedman, who speaks of “neighborhood effects”
and of Lord Robbins, who refers to the same concept as “indiscriminate
benefits.”There will continue to be
disagreement about how much governmental activity is justified by this
awareness.But Robbins, for one, has
argued that “personally… I think that there is still room in the twentieth
century for considerable extensions of this kind of state activity.” (Endnote
4)

Those
committed to a market system will necessarily want to scrutinize each such
activity carefully.Is the value to be
served an important one, either for the rich diversity of the society or
because it is sought by a significant number of people?Is its attainment beyond the capacity of the
market?Is there no way that, given an
appropriate framework of law or institutions, it can be serviced by the market?

6.Awareness of the need for an extensive
institutional framework for the market.A weakness in the classical liberal defense of the market economy has
been that its defenders, in their opposition to statism, have been too ready to
skimp on the legal and institutional prerequisites of a truly workable system
of private property and contract.In
countless ways, a market system can be made more functional by an improved
framework.

Ludwig
Erhard saw this when he argued that “one cannot, in all conscience, speak of
state intervention when the state is merely safeguarding the basic principles
of a free, democratic social system.”He
added that “one of the state’s main responsibilities is—and must be—to
establish and maintain the foundations on which the nation’s economy can
function.” (Endnote 5)

7.Awareness of an ethical, cultural context.It has been common within classical liberal
ethical theory to argue that “anything that is arrived at through freely
negotiated contract is all right.”An
ethic based on the sale criterion of voluntarism loses sight, however, of the
broad civilizational implications of classical liberalism as originally
conceived.Adam Smith made it clear in
his much-overlooked book The Theory of
Moral Sentiments that a market system carries extensive moral
obligations.Richard Cobden of the ManchesterSchool expressed shock when someone
argued to him that freedom-of-contract sanctioned the financing of a
brothel.Horatio Alger, despite his
reputation among those who haven’t read him, stressed in his novels a
value-system of high ethical commitment.

Roepke
points out that a market economy “may be regarded and defended only as part of
a wider general order encompassing ethics, law, the natural conditions of life
and happiness, the state, politics and power.”He adds: “This implies the existence of a society in which certain
fundamentals are respected and color the whole network of social relationships:
individual effort and responsibility, absolute norms and values, independence
based on ownership, prudence and daring… proper coherence with the community,
family feeling, a sense of tradition….” (Endnote 6)

8. Regaining community.Given the economic and social mobility that a
market system requires, the redevelopment of a sense of community cannot be
based upon a lack of change or of movement.It will have to be qualitative in a mobile setting.There will never be the commonality that
typifies a totalitarian social religion, such as National Socialism or
Marxism-Leninism—and I see that as a major plus.But a social market economy will need to do
all that it can to integrate the otherwise autonomous individual into networks
of fellowship.We should not, of course,
overlook the extent to which this happens already through the vast array of
voluntary associations in a free society.

9.Need for an appropriate intellectual culture.The alienation of the intellectual has
entailed a vastly significant division within modern culture.Needless to say, a social market economy will
be enormously strengthened and enriched in comparison to the capitalism of the
past if, out of the convergence of several points of view within the
intellectual community, it comes to enjoy the support, participation and
self-criticism of a significant part of the intellectual culture.

A social
order founded solely on the tradesman (the “bourgeoisie”) and the on-going
pursuit of mundane and practical values cannot be considered civilizationally
complete.It lacks the cultural and
spiritual expression, and the reformist self-criticism, that every society
needs.

John Stuart
Mill saw this clearly when, embracing an idea he found in Coleridge, he
perceived the need for a “clerisy.”If
it is to be fully developed, a free society requires an intellectual culture
appropriate to itself, one that shares its central values but seeks always to
uplift, to question and to refine.

10.Democratic, rather than autocratic.Norman Podhoretz, one of the
neo-conservatives,has quote the
sociologist Peter Burger to the effect that “in the empirical reality of the
contemporary world all democracies
cluster in that part of the ideal-typical scale that is much closer to the
capitalist than the socialist pole.” (Endnote 7)

The Left’s
championing of the have-nots has obscured the fact that it is a classical
liberal society, with its essential faith in the private sector, that is most
assuredly committed to democracy.The
Left does not perceive it this way, since it believes that its collective
action is precisely on behalf of the most meaningful long-run amelioration of
the condition of average humanity.

Ultimately,
however, the question of democracy comes down to whether the intellectual
culture is prepared to abide (subject only to its influence and not primarily
its coercion) the many choices that average humanity will make regarding such
things as goods, lifestyle, taste and entertainment.Although a social market economy will involve
a more active participation by the intellectual than capitalism has in the
past, those who support it will need to be conscious of the fact that a choice
for democracy is a choice away from dictation of the content of life by
intellectuals.A market system differs
from a “planned” system in its fundamental acceptance of the choices of
ordinary humanity.Those to whom this is
distasteful should choose instead to embrace one form or another of
socialism.An intellectual “clerisy” is
harmonized with democracy within a free society only if the intellectuals adopt
a certain humility.

This
suggests, too, the need for a major redirection of modern social science.If a large private sphere is to be
acknowledged, statistical studies must cease to be instruments for
“deprivatization.”There should be a
distinct abjuring of the process of aggregating together many individual
difficulties to transform them into “social” problems with an eye toward
governmental or other collective solution.The social science supportive of a social market economy will confine
its interest in such problems to what will better enhance the framework for
private interaction.

11.A safety net.Three of the philosophies that presently have
elements that are open to a social market economy—i.e., Burkean conservatism,
social democracy and modern liberalism—will have little difficulty accepting
the notion of at least a “conservative welfare state,” as Irving Kristol has
referred to it, that would place a “floor” or “safety net” under people while
doing so in a way that would nevertheless use market mechanisms, give
individual choice, and seek to preserve incentives to self-reliance.

It is
considerably more difficult for classical liberal theorists (although not
necessarily for conservative politicians).And yet, there is quite a lot that can be done in the development of the
institutional framework of a free society that can, through the further
development of insurance, satisfy most, if not all, of the needs that people
have to pool risk.Some compulsory
participation, in at least alternative market mechanisms, and tax support will
be needed.A safety net can be a
conservative element in society, removing some of the principal objections to a
market system; it can be, in effect, an aid-in-service-to-the-market; and as
the wealth of the society increases it should be something that will become
less and less necessary.

Where the
proponents of a social market economy ought to differ most sharply from the Left’s
political and ideological opportunism (although not necessarily from its
theory) is in refusing to encourage the existence of a permanent sub-class of
the declasse.A “conservative welfare
state” would involve a constant stress on responsibility.This will make it important to continue the
process of the assimilation of all minorities into the mainstream.

12.The role of intermediate collectives.For a century or more, there has been
considerable stress within social democratic thought on consumer and producer
cooperatives, mutual associations, worker-owned-and-controlled enterprises, and
the like.Those who come to a social
market economy concept from the Left will consider such instruments of a
“decentralized collectivism” especially valuable.

Whether a
consensus about the role of such collectives can be reached that will allow all
four ideologies to support a common vision of a social market economy will
depend upon several factors. First, they
will not be acceptable to classical liberals and Burkean conservatives if it
seems plausible to suppose that they are simply a transitional step toward, or
organizational building-blocks for, a centrally planned socialist system.Accordingly, the schemes for “industrial
democracy” that were so popular around the time of World War I, or that have
been put forward recently by such a writer as Severyn Bruyn who proposes the
networking of collectives into a planned economy, are far removed from what
would fit into a social market economy.

Second,
their existence would need to be coterminous with, and not exclusive of, the
existence of privately-owned enterprises that would hire people, since it is
precisely this form of enterprise that supporters of capitalism see as a
vitally important guarantee of personal autonomy and creative initiative.To the extent that the support for
cooperatives and worker-control embodies the socialist hostility to the “wage
relation,” the collectives are incompatible with a market system.To the extent, however, that the collectives
are simply competing forms of enterprise, they are not only consistent with a
market economy, but can enrich it.

The general
adoption of a principle of “co-determination,” under which the control of
enterprises is shared by management, labor and government, would be
incompatible with a market economy for the reason I have just given, that it
would supplant privately-owned and managed firms.

Third, it
would be important that the collectives exist on an equal basis with other
forms of enterprise, without the legal favoritism or tax advantages that their
proponents have so often advocated.A
social market economy that would stack the deck in favor of collectives would
almost certainly be a mere transitional vehicle toward socialism.

Fourth, the
same anti-trust type of concern about size would need to be applied to such
collectives as to other enterprise, since cooperatives can easily swallow the
market, eliminating competition.

13.Points of difference with democratic
socialism.We have noted several
of the elements that would differentiate a social market economy from
democratic socialism.If it is to be
conceptually clear, the idea of a social market economy cannot be “all things
to all people.”Where the conflicting
elements of modern ideology are irremediably in conflict, its proponents will
have to choose.If they do not, the
concept will suffer from inherent contradictions and ambiguities.